Frequently Asked Questions

What are the special provisions for price adjustments in FP-EPA contracts and why are they necessary?

Fixed Price with Economic Price Adjustment (FP-EPA) contracts are a unique type of fixed price contract that allows for price adjustments under certain circumstances. These adjustments can be either positive or negative, and are typically triggered by market fluctuations that are beyond the seller's control. The necessity for these special provisions arises from the inherent uncertainty and volatility in certain markets, which can significantly impact the costs associated with specific labor or materials. FP-EPA contracts include two types of price adjustments: those based on actual increases or decreases in costs associated with specific labor or materials, and those based on standard costs or indices outlined in the service contract. These adjustments cannot exceed a pre-agreed price ceiling, ensuring that any price increases remain reasonable. Provisions are also set in place for price reductions when rates fall below certain thresholds. These contracts are typically used when there is reasonable doubt regarding the stability of certain conditions over the extended period of a project, such as market stability or labor conditions. They are particularly useful when the contingencies that would normally be included in a firm fixed price contract can't be easily identified and covered separately.